HP splits again: Hewlett Packard Enterprise spins off IT services

HPE is getting out of the outsourced, offshored IT service business.

In 2014, Hewlett-Packard announced that it was splitting into two separate companies: Hewlett Packard Enterprise, selling servers and enterprise services, and HP Inc, selling PCs and printers. That split completed last year at the cost of more than 30,000 jobs. In a surprise announcement today, the company is about to embark on a second split: Hewlett Packard Enterprise is spinning off its IT services business.

The low-margin outsourced IT services business, which HP got into with its $14 billion acquisition of EDS in 2008, is to be merged with Computer Sciences Corp (CSC) to create a new company currently known only as SpinCo. HPE will own half of the new company, HPE CEO Meg Whitman will be on the new company's board, and HPE and CSC will each nominate half of the board members. CSC's current CEO, Mike Lawrie, will become CEO of the new company.

HPE says that the deal will save around $1 billion in operating costs. HPE shareholders will own shares in both companies, owning half of the combined company, with their stake valued at around $4.5 billion. They'll also receive a $1.5 billion cash dividend. Additionally, the merger will see some $2.5 billion in debt moved to SpinCo's books.

Even before the split, Whitman announced plans to replace 60 percent of its IT service staff from the US and Europe with cheaper workers in Costa Rica, the Philippines, Bulgaria, and India, in an effort to boost profitability. The division has seen its annual revenue decline for a number of years; it's currently around $20 billion, a $4 billion decrease from 2011.

Lawrie estimates that the new company will have revenue of about $26 billion, with 5,000 clients in 70 countries. The deal is expected to close by March 2017.

The remaining HPE will continue to sell servers, storage, and network gear, with annual revenue of around $32 billion.